Brent crude oil has risen three per cent and is on track for a record monthly rise , while global stocks are in limbo as investors dig in for a Gulf conflict they fear will bring a spike in inflation and the risk of recession to much of the globe.
Shares across Asia fell on Monday, with Japan’s Nikkei index closing down 2.8 per cent, in a region more reliant on Gulf oil exports.
European stock markets were firmer in early trading and Wall Street futures pointed to gains, although they were slim given a recent sell-off.
Investors were assessing conflicting developments.
The Financial Times late on Sunday quoted President Donald Trump saying the US could seize Kharg Island in the Persian Gulf, from where Iran exports much of its oil, but also that a ceasefire could come quickly.
Pakistan said it was preparing to host “meaningful talks” to end the conflict over Iran in the coming days, even though Tehran accused Washington of preparing a land assault as the US military builds up forces in the region.
“Oil is the lightning rod right now,” said Eren Osman, managing director of wealth management at Arbuthnot Latham, adding a reopening of the Strait of Hormuz was the key to calming world markets.
“The biggest challenge for us as investors today is that you’ve got one of the widest ranges of potential outcomes,” he said, adding he did not expect a prolonged conflict as he believed Trump had a “pain threshold” for market losses.
Madison Cartwright, senior geo-economics analyst at Commonwealth Bank of Australia, said Iran’s control of the Strait of Hormuz nonetheless gave it little incentive to concede and the bank expected the war to run until at least June.
The clampdown on the Strait has sent prices for oil, gas, fertiliser, plastic and aluminium surging, along with fuel for planes and shipping.
Prices for food, pharmaceuticals and petrochemical products are all set to rise.
That is particularly bad news for Asia, as much of the region is highly dependent on energy from the Middle East.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.8 per cent.
European stocks were last up 0.3 per cent, while S&P 500 futures and Nasdaq futures pointed to gains of about 0.5 per cent each.
“The longer the Strait remains closed, the sharper the drawdown in buffer supplies that could spark dramatic increases in the price of crude oil, natural gas and other commodities,” warned Bruce Kasman, global head of economics at JPMorgan.
“A scenario in which the Strait remains closed for an additional month would be consistent with oil prices rising towards $US150 ($A219)/bbl and constraints on industrial consumers of energy supply.”
Brent crude rose three per cent to $US116 ($A169) a barrel, on course for a 60 per cent gain in March that would outpace the monthly jump that followed Iraq’s invasion of Kuwait in 1990.
US crude climbed two per cent to $101.67.
The inflationary threat has led investors to revise up the outlook for interest rates almost everywhere.
US Federal Reserve Chair Jerome Powell will have a chance to air his views at an event later on Monday and the influential head of the New York Fed, John Williams, is also speaking.
Data on US retail sales, manufacturing and payrolls this week will provide an update on how the economy is faring.
The energy shock, combined with pressure on fiscal budgets from higher borrowing costs and the need for more defence spending, has hit sovereign bond markets.
Ten-year US Treasury yields were last at 4.3959 per cent.
Heightened volatility in markets has tended to benefit the US dollar as the world’s most liquid currency.
The US is also a net energy exporter, giving it a relative advantage over Europe and much of Asia.
The dollar index was trading near a 10-month high at 100.26, broadly flat on the day.
Yet more warnings of possible intervention from the Japanese authorities did see the dollar ease 0.3 per cent to 159.775 yen.
It crossed the 160 barrier last week for the first time since July 2024, when Japan last acted to buy yen.
The euro dipped 0.1 per cent to $1.1493, not far from a March trough of $1.1409.
In commodity markets, gold gained 0.9 per cent to $4534 an ounce, having recently drawn scant support as a haven or as a hedge against inflation risks.